Mimova Ltd buys shoes from a supplier in France and sells them on to retailers in Australia. Mimova Ltd currently uses an EOQ model to determine the number of shoes to send to order.

• Annual demand for shoes are approximately 45,600.
• The ordering cost is $55 per order.
• The annual cost of physically storing shoes is $8.75 per unit.
• The insurance on the inventory (shoes) cost is $4.25 per unit.
• The opportunity cost (annual ROI 25% x $30) is $7.50 per unit.

Mimovas accountant, Maison Courtney, recently attended a seminar on Just-in-Time (JIT) and is considering how the ideas of JIT differ from traditional techniques like EOQ and how they may help to manage inventory more efficiently.

REQUIRED

A) Use the EOQ model to determine the optimal number of shoes per order. (show calculations)

B) If it takes two weeks to receive an order, at what point should Mimova Ltd reorder shoes? (show calculations)

C) What are the total relevant ordering and carrying costs? (show calculations)

D) Mimova Ltd has determined that demand may vary from the average by up to 25%. To handle the variation in demand, Mimova Ltd has decided that it should maintain enough safety stock to cover any demand level. How much safety stock should the Adelaide warehouse hold? How will this affect the reorder point and reorder quantity? (show calculations)

E) Briefly outline what a Just-in-Time system is and explain why inventory holding cost can be regarded as being underestimated traditionally, providing examples of component parts of that cost. Also explain what measures can be put in place to reduce the cost per order.